U.S. equity funds see outflows on rate cut views

U.S. equity funds witnessed outflows in the week to Oct. 9 as investors booked profits due to a shift in market expectations about the Federal Reserve rate cut path and a surge in bond yields.

According to LSEG data, investors sold a net $342 million worth of U.S. equity funds during the week following a net $30.86 billion worth of purchases in the previous week.

Investors pared back expectations on future Fed rate cuts last week following a stronger-than-expected U.S. nonfarm payrolls report for the last month.

The benchmark 10-year U.S. Treasury yield reached a 2-1/2 month high of 4.12% on Thursday, tempering earnings expectations for large-cap growth stocks.

Investors divested U.S. large-cap funds of a net $4.25 billion, in contrast to $35.47 billion in net purchases, a week ago. They also ditched mid-cap funds of $919 million but scooped up multi-cap and small-cap funds of $197 million and $118 million, respectively.

Sectoral equity funds, however, witnessed inflows worth $730 million, with tech, and metals and mining drawing a notable $639 million and $251 million, respectively.

U.S. bond funds, meanwhile, garnered a 19th weekly inflow in a row, valued at about $3.37 billion on a net basis.

Short-to-intermediate investment-grade funds attracted a significant $1.5 billion, the fourth consecutive weekly inflow. U.S. investors also bought general domestic taxable and loan participation funds worth a net $1.06 billion and $682 million, respectively.

At the same time, money market funds saw a net $2.54 billion worth of investments, the third successive weekly net purchase.

Global investors made large investments in money market funds in the week to Oct. 9 driven by a push back in Federal Reserve rate cut expectations and caution over the Middle East conflict.

Investors also channelised capital into liquid money market funds as they awaited a much-anticipated update on Beijing’s stimulus measures this weekend.

According to LSEG data, global money market funds gained a net $24.55 billion worth of inflows during the week after witnessing about $22.78 billion of net purchases in the prior week.

Investors readjusted their views on future Fed rate cuts last week following a stronger than expected U.S. nonfarm payrolls report for the last month, boosting demand for low-risk assets.

Asian money market funds saw a significant $12.88 billion inflow, the highest since Jan. 10. European and U.S. funds also witnessed $7.78 billion and $2.54 billion worth of net purchases, respectively.

Demand for riskier equity funds, however, cooled as investors purchased just $3.65 billion of global equity funds compared with $35.97 billion of net acquisitions in the prior week.

Tech, financials, and metals and mining sector funds received a notable $572 million, $417 million and $148 million, respectively, while the healthcare sector suffered $520 million worth of net sales.

Overseas China equity funds attracted a sharp $8.52 billion, the biggest amount for a week since at least December 2020.

Global bond funds attracted investments for the 42nd consecutive week as investors pumped $12.43 billion into these funds.

Investors snapped up short-term bond funds of a net $2.16 billion following $3.3 billion of net sales a week ago. Government, high yield, and loan participation funds, meanwhile, experienced $1.96 billion, $906 million and $737 million worth of net purchases, respectively.

Gold and other precious metal funds retained their appeal for a ninth successive week, attracting about $780 million in inflows. Energy funds, however, saw a marginal outflow of $11 million.

Data covering 29,545 emerging market funds showed equity funds attracted a massive $8.55 billion, the largest amount since January 2021. Investors also purchased $1.76 billion of bond funds.